Arizona will tax hospitals and insurers for the $154 million. Then it will return $154 million to the health industry via more Medicaid business that will cover the cost of the tax and then some. The money needs to make a round trip from providers to the state and back to providers to game that 67% federal matching rate.

So Arizona takes (say) $3 from a hospital and then turns around and pays the $3 back, using one of the hospital’s own dollars that Arizona converted to “revenue” plus two dollars courtesy of Washington for its 67% federal share of the $3 payment. Arizona can then use the hospital’s remaining $2 of the original $3 to pay for another $6 of Medicaid expansion.

Some 49 state now use this trick of so-called provider taxes to goose federal spending, up from 21 in 2003. (Alaska is the exception.) But the practice is so abusive that even Mr. Obama proposed new limits in his last two budgets.

Comments (7)

Yeah, this is an old trick. The state game the system, HHS turns a blind eye because they want increased Medicaid spending. The Democrats perpetuate this scam and republicans all participate. In Texas, rather than a tax, there is something akin to a gentleman’s agreement where the big hospitals hand over money which the state then hands back in the work of payments that qualify for federal matching.

It’s even better than it seems. Arizona is one of those states that gets more from the Feds than we send to them in taxes, so this little deal is funded with other peoples’ money! Even better, other peoples’ money from blue states.

If we set up a system that rewarded people for staying healthy – rather than focusing on alleviating symptoms and ills – then we can put the ball in the patient’s court.
The rest of this will work itself out.